[yodsanklai]

Thanks for the link. Actually, I've been watching a finance class given by the infamous Martin Shkreli (I came across it in an other HN comment recently). https://www.youtube.com/watch?v=ARrNYyJEnFI and I've been pondering this efficiency hypothesis.

Basically, he explains how to pick stocks by fundamental analysis. Very entertaining to watch how this type of investors works. However, I can't help thinking that despite the rather sophisticated analysis, it just amounts to throwing random guesses. He always has to guesstimate some percentages (business future income over a decade and various other parameters) that can't be known precisely and little variation in them totally change the decision.

What he says it that 20% of stocks are badly priced by the market, it's just a matter of working hard enough to find them. Could it be that the market is only mostly efficient? or those successful investors are just the lucky ones and they are biased to interpret their success on great skills when it really is luck? (Nicholas Taleb's "fooled by randomness" is all about this idea).

I also watched a finance class on coursera (from Prof. Shiller) where this was discussed. A guest speaker (Andrew Redleaf) explained that the efficiency hypothesis was a thing of the past, essentially popular in academia, and he gave several reasons why it couldn't be true (you can find the video if you're interested) and it was convincing.

[svantana]

It's inevitable that the market will have some inefficiencies, the question is: how can you tell whether you found one? Mark Cuban claims he got rich because he found stock price anomalies in a business he was knowledgeable about, namely network equipment [1]. But he also warns that every stock trade has a sucker involved, and how do you know that you're not the sucker (i.e. the other party knows the stock is going to go down and that's why they're selling)?

1. http://blogmaverick.com/2013/01/10/the-stock-market-2/

[freyr]

He might have made some money picking stocks, but he got rich by selling an overvalued company at the peak of the dotcom bubble. I suppose this is an example of a market inefficiency as well.

[thebasuboy]

Taleb's "fooled by randomness" is often misquoted as attributing performance to luck rather than skill, but it actually explores the idea that returns are affected more by variability rather than the return itself in the short run. That is, one will not do oneself better by watching the market, but rather investing for the long run.

I've worked in the investments industry a long time now, and I've come to realize that the market is great at coming to a consensus, not necessarily the right one. It's the job of an investor (much like an entrepreneur) to have a different thesis from the rest of the market, have conviction that they are right, and then be right.

That being said, the market, especially the US equity markets, are predominantly efficient. Alpha can be found outside the mainstream, however.

[sumedh]

> or those successful investors are just the lucky ones

Buffett directly answers this question

http://www8.gsb.columbia.edu/rtfiles/cbs/hermes/Buffett1984....

[hohenheim]

I started watching his videos as well. Interesting stuff. But one thing that stood out for me was what he said once along the lines: "I recommend many stocks, I rarely buy stocks myself".

[yodsanklai]

He says at the very beginning that he doesn't recommend investing one's own money. It's better to do it professionally with other people's money because if you mess up one year, you keep your bonuses from previous years. It makes sense!

[Marazan]

The market is irrational but it can stay irrational longer than you can stay solvent.